World Economic Forum: Income Inequality Major Risk

Rising income inequality and the polarization of societies pose a risk to the global economy in 2017 and could result in the rolling back of globalization unless urgent action is taken, according to the World Economic Forum.

The WEF’s annual global risks report – culled from 700 experts – found that rising income and wealth disparity and increasing polarisation of societies were ranked first and third among the underlying trends that will determine the shape of the world in the next decade.

Rising income inequality and the polarisation of societies pose a risk to the global economy in 2017 unless urgent action is taken, according to the World Economic Forum.

Climate change was considered the second most important underlying trend, with the WEF noting that environmental concerns were more prominent in the report than ever before.

Trump’s inauguration coincides with next week’s Davos meeting and the founder of the WEF, Klaus Schwab, said that 2017 would be a pivotal moment for the global community.

“The threat of a less cooperative, more inward-looking world also creates the opportunity to address global risks and the trends that drive them,” he said.

While stressing the need for faster economic growth, the WEF said the growing mood of anti-establishment populism meant this would no longer be enough to mend fractured societies. It added that fundamental reform of capitalism would be needed.

The global risks report said Brexit, the US presidential election result and the referendum defeat suffered by former Italian prime minister Matteo Renzi last month meant some people were now questioning whether “the west has reached a tipping point and might now embark on a period of deglobalisation”.

The US economist Dani Rodrik has coined the phrase “the globalisation trillema” to capture the idea that countries cannot have democracy, national sovereignty and globalisation; they can only ever have two out of the three. The WEF said recent events in Europe and the US suggested an “appetite for rebalancing towards democracy and national sovereignty”.

The WEF said that for more than a decade it had been pointing out the dangers of rising inequality and political polarisation, but that the slow pace of recovery from the deep recession of 2008 had intensified income gaps within countries.

Emergency measures such as quantitative easing – the creation of money by central banks – had become permanent features of economic policy, and had exacerbated inequality by boosting the returns of those holding financial assets.

It added that the trends of recent years had come into sharp focus in 2016 with rising discontent and disaffection evident in the UK with the vote to leave the EU in June and in the US with Trump’s victory over Hillary Clinton last November.

“Urgent action is needed among leaders to identify ways to overcome political or ideological differences and work together to solve critical challenges,” said Margareta Drzeniek-Hanouz, head of global competitiveness and risks at the WEF.

“The momentum of 2016 towards addressing climate change shows this is possible and offers hope that collective action at the international level aimed at resetting other risks could also be achieved.”

The report warned that society was not keeping pace with technological change. It found that of 12 emerging technologies artificial intelligence and robotics had the greatest potential benefits but also contained the greatest negative threats.

“Technology has always created jobs as well as destroying them, but there is evidence that the engine of technological job creation is sputtering” the report said, citing evidence that only 0.5% of the current US workforce was employed in sectors created since 2000 compared with approximately 8% in industries created in the 1980s.

“Technological change is shifting the distribution of income from labour to capital: according to the Organisation for Economic Cooperation and Development, up to 80% of the decline in labour’s share of national income between 1980 and 2007 was the result of the impact of technology.”